M/S. KARNATAKA POWER CORPORATION LIMITED,BANGALORE vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE- 11(5), BANGALORE

PER B.R. BASKARAN, ACCOUNTANT MEMBER:

These cross appeals are directed against the order dated 25.10.2019 passed by Ld. CIT(A)-4, Bengaluru and they relate to

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Page 2 of 21 the assessment year 2010-11. Th grounds urged by the assessee give rise to the following issues:- a) Partial disallowance of prior period expenses. b) Disallowance of maintenance charges and other expenses. 2. The grounds urged by the revenue give rise to the following issues:- a) Relief granted in respect of additional depreciation. b) Relief granted in respect of prior period expenses. c) Deduction allowed u/s 80IA of the Income-tax Act,1961 ['the Act' for short]. d) Relief granted in respect of application of section 115JB.

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Page 3 of 21 collieries & payments for grade variation 6. Operation & Maintenance charges – over 49,47,370 and above existing provision 7. Annual Maintenance Contract of 33,789 Computers 8. Hire charges 26,706 9. Rent, rates and taxes 3,94,604 10. Courier charges 13,503 11. Advertisement charges 1,71,560 12. Canteen subsidy 13,907 13. Exgratia/Salary/Stipend/Incentive 42,44,9223 14. Short provision towards Electricity tax on 27,164 auxiliary consumption Total 12,24,16,559

4.1. The A.O., however, disallowed to the extent of Rs.9,37,13,729/- rejecting the claim of the assessee that the said expenses have been crystalized during the year under consideration. The details of disallowance made by the A.O. are given below:- a) Power charges - Rs.5,82,58,676/- b) Refund made to Singareni Collieries towards grade variation and interest - Rs.2,90,18,385/-

c) (i) Maintenance of Dam -Rs.8,35,229/- (ii) Maintenance contracts -Rs.49,81,159/- (iii) Other expenses -Rs.6,20,280/ -Rs.64,36,668/- Total Rs.9,37,13,729/-

4.2 The Ld. CIT(A) deleted the disallowance relating to power charges and refund of money given to Singareni Collieries. He confirmed the disallowance of remaining item of Rs.64.36 lakhs referred above. The revenue is challenging the decision of Ld. CIT(A) in granting relief and the assessee is challenging the decision of Ld. CIT(A) in confirming the disallowance.

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Page 4 of 21 5. The first item relates to disallowance of power charges of Rs.5.82 crores. The A.O. noticed that the above said amount related to the electricity charges raised by GESCOM upon the assessee in respect of electricity consumed in a colony belonging to the assessee during the financial years 2002-03 to 2008-09. The A.O. took the view that the assessee should have accounted for these power charges in the respective years, as it is following mercantile system of accounting. The assessee, however, submitted that there was dispute with regard to the quantum of electricity consumed and it was resolved during the year under consideration. Accordingly, it was submitted that these expenses got crystallized only during the year under consideration. Accordingly it was contended that it is allowable as deduction in the current year. The A.O. rejected the said explanations observing that the assessee has failed to provide any evidence to support its submissions. Accordingly, he disallowed the claim of Rs.5.82 crores.

5.1 The Ld. CIT(A) deleted the disallowance by following the decision rendered by Hon’ble Bombay High Court in the case of CIT Vs. Nagri Mills Ltd. (33 ITR 681). The Ld CIT(A) also observed that the Tribunal, in the assessee’s own case relating to the assessment years 2006-07 & 2008-09 in ITA Nos.323 & 1341/Bang/2012, has decided the issue relating to prior period expenses in favour of the assessee. However, we notice that the nature of prior period expenses dealt with by the Tribunal in those years is different.

5.2 The Ld. D.R. submitted that the AO has stated that the assessee has not furnished any proof to show that the expenses were crystallized during the year under consideration. On the contrary, the Ld. A.R. submitted that the dispute with regard to the power units consumed by the assessee in the Shakti Nagar Colony

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Page 5 of 21 got resolved only on 21.11.2009. He submitted that the Ld. CIT(A) has extracted the correspondence between assessee and the power supplying company namely GESCOM at page 23 of the order. Accordingly, the Ld. A.R. submitted that there is no dispute that this issue got crystallized during the year under consideration.

5.3 We heard rival contentions and perused the record. It is well settled proposition of law that the expenditure that got crystallized in a year is allowable in that year, even if the said expenditure pertained to prior years. In this case, it is the submission of the assessee that the dispute with regard to the electricity charges relating to Shakthi colony got crystallized during the year under consideration. In this regard, the Ld A.R relied upon the correspondence issued by the Chief Engineer, GESCOM, Gulbarga and the same has been extracted by Ld CIT(A) in his order. For the sake of convenience, we also extract the same below:-

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Page 6 of 21 A perusal of the above said letter would show that the approval was finally granted by GESCOM on 21.11.2009 accepting the prayer of the assessee, meaning thereby, the issue got settled only during the year under consideration. Accordingly, we of the view that this expenditure is allowable during the year under consideration. We notice that the Ld. CIT(A) has taken support of the decision rendered by Hon’ble Bombay High Court in the case of CIT Vs. Nagri Mills Ltd. (supra), wherein the Hon’ble Bombay High Court has expressed the view that the question as to the year in which a deduction is allowable may be material only when the rate of tax chargeable on the assessee in two different years is different. Accordingly, we do not find any infirmity in the decision of Ld. CIT(A) in granting relief to the assessee on this issue.

6.1. It was submitted that the assessee had entered into fuel supply agreement with SCCL for supply of coal to the assessee. As per the agreement, there is a clause for recovery of cost for slippage in the grade of coal supplied by SCCL. Accordingly, the assessee deducted a sum of Rs.2,53,43,649/- towards slippage in grade of coal. However, it appears that there was difference of opinion on the quantum of deduction and accordingly SCCL raised debit notes

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Page 7 of 21 upon the assessee for Rs.1,60,83,958/- (total of item 1 & 2 above). It was submitted that the dispute with SCCL was reconciled during the financial year 2009-10 and accordingly, the above said amount was accounted as “prior period expenditure”, since the supply of coal was related to the period commencing from January, 2003 to March, 2007. As per the supply agreement, the assessee is also liable to pay interest on belated payment and the same was also quantified during the financial year 2009-10 at Rs.1,37,81,323/-, out of which a sum of Rs.1,29,34,427/- related to the earlier years. Accordingly, the aggregate amount of Rs.2,90,18,385/- was provided for in the books of accounts as Prior Period expenses. Accordingly, it was submitted that the above said payment got crystallized during the financial year 2009-10 relevant to AY 2010- 11. The A.O. did not accept the explanations of the assessee for want of evidences and accordingly, disallowed the prior period expenses to the tune of Rs.2,90,18,385/-, referred above.

6.2 Before Ld. CIT(A), the assessee submitted minutes of proceedings dated 8.11.2010, wherein M/s. SCCL has agreed to accept payment of Rs.81,55,919/- only and waive the remaining claims. We notice that the Ld. CIT(A) has allowed the claim of the assessee by following the decision rendered by Hon’ble Bombay High Court in the case of CIT Vs. Nagri Mills Ltd. (supra) and also the decision rendered by the coordinate bench in ITA Nos.323 & 1341/Bang/2012 relating to assessment year 2006-07 & 2008-09.

6.3 The Ld. A.R. submitted that the assessee has provided for this expenditure after completion of the reconciliation of claims between the assessee and SCCL, since the liability of the assessee was quantified during FY 2009-10 (relevant to AY 2010-11). Accordingly, he contended that this expenditure got crystallized

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Page 8 of 21 during the year under consideration. Accordingly, he contended that the decision rendered by Ld CIT(A) does not call for any interference.

6.4 The Ld. D.R. however, supported the order passed by the A.O.

6.5 We heard the rival contentions on this issue. From the submissions made by the Ld. A.R., we notice that the assessee was making deductions against the bills for supply of coal to the assessee on account of quality difference of coal supplied by SCCL. There was difference of opinion between the assessee and the supplier SCCL on this aspect. Finally, the differences between them were reconciled and settled during the year under consideration. Thus, the assessee has acknowledged the liability after the finalization of reconciliation statement and has provided for the same in the books of account. Hence the Ld CIT(A) has allowed the claim. In our view, the claim can be said to have crystallized when the difference between the parties were settled. It is stated that the difference was reconciled during the year under consideration and hence the assessee has claimed the same as deduction during the year under consideration.

6.6 We also notice that the assessee, even after finalizing the quantum of differences, was negotiating for further reduction of payments. As per the proceedings dated 8.11.2010, which has been extracted by Ld CIT(A) in his order, the Managing Director of the assessee has approved payment of Rs.81,55,919/- on the condition that SCCL shall withdraw all claims relating to old period. It is mentioned that the above said approval was given upon the promise of SCCL to waive the claims. The Ld. A.R. submitted that the excess provision made during the year under consideration has

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Page 9 of 21 been reversed in the succeeding year and offered to tax. We notice that the Ld. CIT(A) has extracted the proceedings dated 8.11.2010,

6.7 Under these set of facts, a question that arises is whether the deduction of Rs.2,90,18,385/- claimed by the assessee should be restricted to Rs.81,55,919/- or not. We notice that the present assessment year is AY 2010-11 and it is stated that the assessee has reversed the excess provision in AY 2011-12. The Ld CIT(A) has observed that there is no difference in tax rates between these two years. The Hon’ble Bombay High Court in the case of CIT Vs. Nagri Mills Ltd. (supra) has expressed the view that the question as to the year in which a deduction is allowable may be material only when the rate of tax chargeable on the assessee in two different years is different. Accordingly, it would be tax neutral exercise, if we restrict the deduction to Rs.81,55,919/-.

6.8 In view of the foregoing discussions, we do not find it necessary to interfere with the decision rendered by Ld. CIT(A) on this issue. The appeal of the revenue is related to the claim of Rs.5,82,58,676/- and Rs.2,90,18,385/- and the grounds relating to the same are dismissed.

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Page 10 of 21 support the above said submissions. Hence, the A.O. disallowed the same and Ld. CIT(A) also confirmed the same.

7.1 Before us also, the assessee could not furnish copy of bills to support its claim that these bills were received only during the year under consideration. In any case, the mercantile system of accounting would call for making provisions on estimated basis even if the bills were not received by the assessee. Accordingly, in the absence of any material to support the claim of the assessee, we are of the view that the disallowance made by Ld. CIT(A) was justified. Accordingly, we confirm the order of Ld. CIT(A) in upholding the disallowance of Rs.64,36,668/-. Accordingly, the ground of the assessee on this issue is dismissed.

8.1 The Ld CIT(A) noticed that the Bangalore bench of ITAT has held in the case of DCIT vs. Hutti Gold Mines Co Ltd (ITA No.832/Bang/2012 dated 2.8.2013) that the amendment brought into Sec.32(1)(iia) by Finance Act 2012 making electricity undertakings are also eligible for deduction u/s 32(1)(iia) of the Act is clarificatory in nature and hence would apply to earlier years

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Page 11 of 21 also. Accordingly, the Ld CIT(A) deleted the disallowance of claim of additional depreciation. The revenue is aggrieved.

8.2 We heard the parties on this issue and perused the record. We notice that the Ld CIT(A) has followed the decision rendered by co-ordinate bench in an identical issue in the case of Hutti Gold Mines Co Ltd (supra), wherein it was held as under:-

“7.1 The amendment brought about in section 32(1)(iia) by the Finance Act, 2012 to include the business of generation and distribution of power to the benefit of additional depreciation is only clarificatory. A similar view has been held by the Hon'ble Chennai Bench of the Tribunal in the case of ACIT vs. M Satish Kumar in ITA No.718/Mds/2012 dated 28th September, 2012. The relevant findings of the Tribunal read as follows:

"9. We have heard the submissions made by the respective parties and have also examined the judgments orders relied on by the A.R. of the assessee. A perusal of the judgments 7 ITA No. 718 /Mds/2012 clearly show that generation of electricity is akin to manufacturing of a new product. In the instant case, electricity which may not be seen with the eyes, however, its effect can be seen and felt. The electricity can be transmitted, transferred, delivered, stored, possessed etc. The Hon'ble Supreme Court in the case of the CST vs. Madhya Pradesh Electricity Board (supra) has held that electricity falls within the definition of goods under the provisions of Sale of Goods Act, 1930. The Delhi Bench of the Tribunal in the case of NTPC Ltd. (supra) after a detailed examination of several judgments, Acts, Constitution of India, has concluded that the process of generation of electricity is akin to manufacture of an article or thing.

7.2 The plea of the Revenue raised in Ground No.3 is also devoid of merits, since in the relevant previous year (the year in which the windmills were installed), assessee was entitled to depreciation only at the rate of 80%.

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Page 12 of 21 The assessee would not have been entitled to additional depreciation, if the assessee was eligible for 100% depreciation.

Since the Ld CIT(A) has followed the decision rendered by the Tribunal, we do not find any reason to interfere with his order rendered on this issue.

9.1 Before Ld CIT(A), the assessee contended that each unit should be considered as separate eligible undertaking and accordingly, the deduction u/s 80IA should be allowed without setting off the loss incurred from other units. In support of its contentions, the assessee relied upon the decision rendered by co- ordinate bench in the assessee’s own case in ITA No.308/2009 relating to AY 2007-08. The Ld CIT(A) noticed that the an identical issue had been decided in favour of the assessee by the Tribunal in AY 2005-06 also in ITA No.294/Bang/2009 dated 10-07-2009 and the said decision has since been upheld by Hon’ble Karnataka High Court. Accordingly, the Ld CIT(A) allowed the claim of the assessee.

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Page 13 of 21 9.2 We heard the parties on this issue and perused the record. We notice that an identical issue, i.e., whether the loss incurred in other units is required to be set off against the profits of eligible undertaking for the purpose of deduction u/s 80IB of the Act or not was examined by the jurisdictional Hon’ble Karnataka High Court in the case of The CIT vs. Komarla Feeds and Foods P Ltd (ITA No.308/2009 dated 16th Janurary, 2015), wherein it was held as under:-

“2. The assessee is a company engaged in the manufacture of poultry and cattle feed. The assessee claimed deduction under Section 80-IB of the Act in respect of the profit of Rs. 1,63,84,963/-, without adjusting loss of Rs. 39,75,115/- suffered in the rearing division. The Assessing Officer accepted said method of computation. The Commissioner of Income-Tax considered the said assessment order as erroneous and prejudicial to the interest of the revenue and he was of the view that the deduction under Section 80-B is different on the gross amount after adjusting the loss of Rs. 39,75,115/-. Therefore, he remanded the matter back to the Assessing Authority to re- compute the same. 3. Aggrieved by the said order, assessee preferred an appeal to the Tribunal. The Tribunal relying on the judgment of the Apex Court in the case of Synco Industries Ltd. Vs. Assessing Officer, Income Tax, Mumbai and Another, (2008) 1 CLT 804 : (2008) 215 CTR 385 : (2008) 299 ITR 444 : (2008) 4 JT 1 : (2008) 4 SCALE 263 : (2008) 4 SCC 22 : (2008) 168 TAXMAN 224 has held the profits of the eligible units have to be computed without the loss from the rearing division being adjusted against the same and he held that the assessee was right in quantifying deductions in respect of Section 80-IB without adjusting the loss of Rs. 39,75,115/- against the profit of Rs. 1,63,84,963/- in the eligible unit. Thus he allowed the appeal. Aggrieved by the said order, the revenue is in this appeal.

"Whether the Tribunal was correct in holding that the Commissioner was not correct in exercising jurisdiction u/S. 263 of the Act in proceeding to hold that a sum of Rs. 39,17,115/- loss sustained in the rearing division should be adjusted against the profits of the eligible units before granting deduction u/S. 80-IB of the Act in view of Section 80-AB of the Act?" 5. Learned counsel appearing for the revenue sought to make difference between the words "undertaking" and "business" used in Section 80-IB and

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Page 14 of 21 contended that insofar as the benefit under Section 80-IB is concerned, as both units are eligible businesses, while computing the deduction, it has to be done only after adjusting the income of the loss making unit and therefore, he submits the impugned order passed by the Tribunal calls for interference. 6. Per contra, the assessee supported the impugned order.

"It is true that under Section 80-I(6) for the purpose of calculating the deduction, the loss sustained in one of the units, cannot be taken into account because sub-section 6 contemplates that only the profits shall be taken into account as if it was the only source of income. However, section 80A(2) and section 80B(5) are declaratory in nature. They apply to all the Sections falling in Chapter VI-A. They impose a ceiling on the total amount of deduction and, therefore the non-obstante clause in Section 80-I(6) cannot restrict the operation of Sections 80A(2) and 80B(5) which operate in different spheres. As observed earlier Section 80-I(6) deals with actual computation of deduction whereas Section 80-I(1) deals with the treatment to be given to such deductions in order to arrive at the total income of the assessee and, therefore while interpreting Section 80-I(1), which also refers to gross total income one has to read the expression gross total income as defined in Section 80B(5)."

ORDER

The substantial question of law framed is answered in favour of the assessee and against the revenue. Appeal is dismissed.”

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Page 15 of 21 We notice that the decision has been rendered by Ld CIT(A) on this issue following the binding decision of Hon’ble jurisdictional High Court. Accordingly, there is no reason to interfere with his decision rendered on this issue.

10.1 The Ld A.R submitted that the decision rendered by the Tribunal in AY 2007-08 in assessee’s own case (ITA No.711/Bang/2011dated 1.10.2013) holding that the provisions of sec.115JB will not be applicable to the assessee has since been upheld by the Hon’ble Karnataka High Court in the assessee’s own case in ITA No.143 of 2014 dated 17th March, 2020). We notice from the order passed by the Hon’ble High Court that the decision rendered by the High Court in the case of ING Vysya Bank Ltd (ITA No.18/2014) has been followed in deciding this issue in favour of the assessee. Accordingly, we extract below the decision rendered by Hon’ble Karnataka High Court in the case of ING Vysya Bank Ltd (ITA No.18/2014):-

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Page 16 of 21 “THE COMMISSIONER OF INCOME-TAX v. M/S. ING. VYSYA BANK LIMITED (ITA 18/2014 dated Jan 16, 2020)

In this batch of appeals a common substantial question of law viz., whether the provisions of Section 114JB of the Income Tax Act, 1961 (hereinafter referred to as the Act, for short) apply to the assessees as they are Banking Companies, arise for consideration. Therefore, these appeals were heard analogously and are being decided by this common judgment. These appeals pertain to assessment year 2002-2003, 2005- 2006, 2006-2007 and 2009-2010. In addition, in ITA No.18/2014, an additional substantial question of law arises, viz., whether the tribunal committed an error of law in allowing the claim of the assessee on the issue of amortization of investment held to maturity without appreciating the fact that though the same was done as per Reserve Bank of India guidelines, yet the same was not an allowable expenditure under Section 37(1) of the Act. For the facility of reference, facts from ITA No.18/2014 are being referred to. 2. Facts giving rise to the filing of these appeals briefly stated are that the assessee is engaged in the business of banking. In the computation of business income furnished along with the return of income for assessment year 2002-2003, the assessee claimed deduction of a sum of Rs.11,18,42,001/- on account of write off of non convertible debentures. The assessee in the communication dated 01.02.20015 furnished for the Assessing Officer submitted that the total write off on account of non convertible debentures was a sum of Rs.17,16,17,001/-, out of which a sum of RS.5,97,75,000/- had been written off during the previous year and charged to profit and loss account. It was claimed that the aforesaid amount has become irrecoverable and therefore, a deduction was claimed on account of bad debts under Section 36(1)(vii) of the Act. The Assessing Officer held that since the aforesaid amounts were subject matter of another assessment year, the claim cannot be entertained in the subsequent assessment year. 3. Being aggrieved, the assessee preferred an appeal. The Commissioner of Income Tax (Appeals) vide order dated 02.01.2012 upheld the order of the Assessing Officer. The assessee thereupon approached the Income Tax Tribunal. The Tribunal vide impugned order dated 14.08.2013 allowed the appeal preferred by the assessee and held that the provisions of Section 115JB of the Act do not apply to the assessee, as it was a Banking company. It was also held that the assessee was entitled to deduction of the amount in question on account of it being a bad debt under Section 36(1)(vii) of the Act. In the aforesaid factual background, this appeal has been filed. 4. Learned counsel for the assessee has invited the attention of this court to Section 115JB of the Act, which was amended with effect from 01.04.2013. It is submitted that Section 115JB(2) of the Act as it existed prior to its amendment with effect from 01.04.2013 mandates the companies to prepare its profit and loss account for the relevant previous year in accordance with provisions of Part-II and Part-III of Schedule-VI to the Companies Act, 1956. However, the aforesaid provision applies to every company and no exclusion has been made in respect of companies

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Page 17 of 21 viz., Banking companies, or insurance companies. It is also urged that the aforesaid fact is fortified by amendment to Section 115JB of the Act with effect from 01.04.2013. Therefore, the provisions of Section 115JB of the Act as it existed prior to its amendment with effect from 01.04.2013 apply to the assessee. It is also submitted that the assessee is not entitled to deduction of the amount as claimed by him and the tribunal grossly erred in holding so. While inviting the attention of this court to Section 115JB(2) of the Act, it is pointed out that the aforesaid provision contains a legal fiction insofar as it pertains to the requirement contained in Section 210 of the Act. In support of aforesaid submissions, reliance has been placed on decisions of the Supreme Court in APOLLO TYRES LTD. VS. COMMISSIONER OF INCOME TAX, (2002) 122 TAXMAN 562 (SC), SOUTHERN TECHNOLOGIES LTD VS. JOINT COMMISSIONER OF INCOME TAX, (2010) 320 ITR 577 AND COMMISSIONER OF INCOME-TAX III VS. CALCUTTA KNITWEARS, (2014) 43 TAXMANN.COM 446 (SC). 5. On the other hand learned Senior counsel for the assessee submitted that the issue whether provisions of Section 115JB of the Act apply to banking company is no longer res integra and is covered by a division bench decision of BOMBAY HIGH COURT IN COMMISSIONER OF INCOME TAX-LTU VS. UNION BANK OF INDIA, ITA NO.1196/2013 DATED 16.04.2019. It is further submitted that the second substantial question of law is also covered by a division bench decision of this court in the case of COMMISSIONER OF INCOME TAX AND ANOTHER VS. KARNATAKA VIKAS GRAMIN BANK, (2016) 130 DTR (KAR) 26. It is also urged that Section 115JB(2) of the Act does not create any legal fiction and the second issue involved in ITA No.18/2014 no longer survives for consideration in view of instruction No.17/2008 dated 26.11.2008 issued by Central Board of Direct Taxes. It is also urged that the decision rendered in the case of SOUTHERN TECHNOLOGIES LTD has been considered by a division bench of this court in KARNATAKA BANK LTD. VS. ASSISTANT COMMISSIONER OF INCOME-TAX, (2013) 356 ITR 549 (KARN) and it has been held that the Reserve Bank of India directions of 1998 are only disclosure norms and have nothing to do with the computation of the total taxable income under the Income Tax Act, 1961. 6. We have considered the submissions made by the learned counsel for the parties and have perused the record. Before adverting to the substantial questions of law, we may take note of well settled rules of statutory interpretation with regard to taxing statutes. In construing fiscal statutes and in determining the liability of a subject to tax one must have regard to the strict letter of the law. If the revenue satisfies the court that the case falls strictly within the provisions of the law, the subject can be taxed. If, on the other hand, the case is not covered within the four corners of the provisions of the taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the Legislature and by considering that was the substance of the matter. In interpreting a taxing statute,

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Page 18 of 21 equitable considerations are entirely out of place. Nor can taxing statutes be interpreted on any presumptions or assumptions. The court must look squarely at the words of the statute and interpret them. It must interpret a taxing statute in the light of what is clearly expressed; it cannot imply anything which is not expressed; it cannot import provisions in the statute so as to supply any assumed deficiency. [See: CIT, BOMBAY VS. PROVIDENT INVESTMENT CO.,, AIR 1957 SC 664, CIT, GUJARAT VS. VADILAL LALLUBHAI, AIR 1973 SC 1016, HANSRAJ & SONS VS. STATE OF JAMMU & KASHMIR, AIR 2002 SC 2692, VIKRANT TYRES LTD. VS. THE FIRST INCOME-TAX OFFICER, MYSORE, JT 2001 (2) SC 45 PP. 459, 460: (2001) 3 SCC 76: AIR 2001 SC 800] [SEE: PRINCIPLES OF STATUTORY INTERPREATION BY JUSTICE G.P.SINGH 13TH EDITIION PAGE 830]. 7. In the light of aforesaid well settled legal principles we may advert to the substantial question of law viz., with regard to applicability of Section 115JB(2) of the Act to the Banking Companies. Before proceeding further, it is apposite to take note of the relevant statutory provisions. Section 115JB of the Act pertains to special provisions for payment of tax by certain companies and provides a formula for payment of minimum tax in case of companies whose tax payable on the total income works out to be below a certain minimum threshold percentage of its book profit. From perusal of the Circular dated 18.02.1998 issued by the Central Board of Direct Taxes, it is evident that the object for introduction of minimum alternative tax is to levy a minimum tax on companies which are having book profits and paying dividends but are not paying any taxes. The relevant extract of Section 115JB of the Act reads as under: 2. Every assessee, being a company, shall, for the purposes of this section, prepare its profit and loss account for the relevant previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956. Provided that while preparing the annual accounts including profit and loss account (i) the accounting policies; (ii) the accounting standards adopted for preparing such accounts including profit and loss account; (iii) the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of Section 210 of the Companies Act, 1956. 8. From close scrutiny of Section 115JB(2) of the Act, it is axiomatic that every assessee being a company for the purposes of said Section prepares its profit and loss account for relevant previous year in accordance with provisions of Part II and Part III of Schedule VI of the Companies Act, 1956. The Assessee being a banking company is not required to prepare its account in accordance with provisions of Part II and Part III of Schedule VI of the Companies Act, 1956. The assessee being a banking company, its accounts are prepared as per the Banking Regulation Act, 1949 and it is not obliged either to convene an annual general

ITA Nos.10 & 26/Bang/2020 M/s. Karnataka Power Corporation, Bangalore

Page 19 of 21 meeting or place its profit and loss account in such general meeting. A General meeting contemplated under Section 166 of the Companies Act, 1956 is not possible in the case of the assessee as there are no shareholders of the assessee. It is also worth mentioning that under Section 166 of the Companies Act, 1956 every company is required to hold a general meeting in each year and Section 201 mandates that every year the Board Of Directors of the company in general meeting shall lay before the company a Balance sheet as at the end of the relevant period and also profit and loss account for the period. Part II and Part III of Schedule VI to the Companies Act specify the method and manner of maintaining profit and loss account. It is also pertinent to note that the assessee under Section 210 of the Companies Act, 1956 is also required to lay its account before the annual general meeting. However such accounts have to be prepared in accordance with the Banking Regulation Act, 1949 which is not possible for the reasons assigned supra. 9. The submission that proviso to Sub section (2) of Section 115JB creates a legal fiction cannot be accepted as under the aforesaid proviso, the company has to prepare the profit and loss account and to place it before the annual general meeting in accordance with provisions with Section 210 of the Companies Act, 1956. A banking company under Section 115JB(2) of the Act can prepare additional accounts as per Part II and Part III of Schedule VI of the Companies Act or fulfill the requirements of the proviso of sub-Section(2) but it cannot fulfill both the conditions. 10. From perusal of general arrangement of provisions of the Income Tax Act, 1961 where under each head of income, the charging provision is accompanied by a set of provisions for computing the income subject to that charge. The character of computation provisions in each case bears a relationship to the nature of the charge. Thus, the charging section and computation provisions together constitute an integrated code. When there is a case to which computation provision cannot apply at all, it is evident that such a case was not intended to fall within charging section. [SEE:COMMISSIONER OF INCOME TAX, BANGALORE VS. B.C.SHRINIVASA SETTY, 1981 VOL 128 ITR 294]. The machinery provisions provided in Sub- Section (2) of Section 115JB of the Act would be rendered wholly unworkable in case of a Banking company. It is also pertinent to mention here that the Companies Act, 1956 has excluded insurance, banking companies or the companies engaged in the generation or supply of electricity from the purview of Section 211(1) of the Companies Act, 1956 and resultantly from the purview of Section 115JB of the Act. 11. Admittedly, the provisions of Section 115JB of the Act have been amended with effect from 01.04.2013, the memorandum explaining the provisions of Finance Bill, 2012 while explaining the amendments to Section 115JB of the Act, notes that in cases of certain companies such as insurance, banking and electricity companies, they are allowed to prepare the profit and loss account in accordance with the Sections specified in their Regulatory Acts. Thus, to align the provisions of the Income Tax Act, 1961 with the Companies Act, 1956, it was decided to amend

ITA Nos.10 & 26/Bang/2020 M/s. Karnataka Power Corporation, Bangalore

Page 20 of 21 Section 115JB of the Act to provide that companies which are not required under Section 211 of the Companies Act, 1956 to prepare profit and loss account in accordance with Schedule VI of the Companies Act, 1956. Profit and loss account prepared in accordance with the provisions of their Regulatory Act shall be taken as basis for computing book profit under Section 115JB of the Act. We agree with the view taken by Bombay High Court in THE COMMISSIONER OF INCOME TAX-LTU referred to supra on the common substantial question of law involved in these appeals. For the foregoing reasons, it is held that the provisions of Section 115JB(2) of the Act do not apply to the Banking companies.

In view of the binding decision rendered by Hon’ble Karnataka High Court, we hold that the provisions of sec.115JB of the Act will not be applicable to the assessee for the year under consideration, since this year falls before the amendment brought in sec.115JB of the Act.

ITA Nos.10 & 26/Bang/2020 M/s. Karnataka Power Corporation, Bangalore

Page 21 of 21 14. In the result, both the appeals of the revenue and the assessee are dismissed.

Order pronounced in the open court on 21st Mar, 2022.

Sd/- Sd/- (N.V. Vasudevan) (B.R. Baskaran) Vice President Accountant Member

Bangalore, Dated 21st Mar, 2022. VG/SPS Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order

Asst. Registrar, ITAT, Bangalore.